Non-Banking Financial Companies (NBFCs) are rapidly gaining ground in unsecured consumer credit, particularly in the consumer durable loans segment, while private sector banks see their market share shrink. At the same time, the Reserve Bank of India (RBI) has tightened oversight on NBFC lending practices — especially loans extended to borrowers with past defaults — in a bid to strengthen risk management and prevent asset quality deterioration.
Key Highlights
- NBFCs capture over 82% share in consumer durable loan originations.
- Private banks’ market share drops sharply amid regulatory and strategy shifts.
- RBI mandates board-approved policies to curb risky lending practices.
NBFCs Capture Consumer Durable Loan Market
According to credit bureau CRIF High Mark, NBFCs now account for 82.8 % of the value of consumer durable loan originations in the December quarter of 2025, up from roughly 70 % two years earlier. In contrast, private banks’ share plunged from 29 % to just 14 % over the same period. The overall outstanding consumer durable loan portfolio was approximately ₹96,300 crore, with year-on-year growth of about 14 %, though volumes remained largely flat.
Industry insiders attribute this shift largely to NBFCs’ aggressive point-of-sale financing, wider merchant tie-ups, and flexible digital lending platforms that allow quicker approvals and easier access for consumers buying electronics and appliances. In contrast, private banks are increasingly pivoting toward credit card-based financing, which generates revenue through swipe fees, EMI conversion charges and interest income, rather than traditional unsecured durable financing.
A senior official from a private sector bank noted, “Regulations have also contributed to NBFCs gaining traction, as they can directly market zero-interest schemes for products, while banks are restricted in their promotional strategies.”
RBI Tightens Rules on NBFC Lending to Defaulting Borrowers
In a parallel move, the RBI has raised flags about NBFCs’ lending practices to borrowers who have existing overdue loans, urging shadow banks to formulate board-approved lending policies to govern disbursements to such borrowers. Regulators found instances where borrowers with overdue vehicle loans were receiving fresh credit for other products without clear internal controls, raising concerns over evergreening — a practice where new loans are used to cover distressed ones, masking true asset stress.
Under the new supervisory insistence, NBFC boards will be required to define circumstances under which credits are extended to otherwise stressed borrowers and outline safeguards to prevent rising exposure without adequate risk mitigation. RBI officials clarified that this is not a ban on lending to such clients, but a governance requirement to ensure transparency and discipline.
An industry auditor explained: “If an NBFC’s internal lending policy is silent on the issue, it cannot justify fresh loans. The focus is on governance, risk management and internal controls aligned with best practices.”
Also Read: The Surprising Rise of Rural Credit Growth - What It Means for Lenders
Broader Credit Trends & Risks
The structural shift toward NBFCs in consumer credit fits into a larger reshaping of India’s credit landscape, where consumerisation has been gaining prominence with rising demand for unsecured loans, housing loans, and retail financing over corporate credit. However, credit experts warn that NBFC concentration in unsecured lending amplifies risks if macro conditions deteriorate or delinquency rises sharply.
Moreover, as borrowers with prior defaults access new credit, regulators and banks alike will need to watch NPAs and Special Mention Accounts (SMA) trends, which indicate early signs of stress before accounts become formally non-performing.
Market Reaction and Outlook
Equity investors in NBFC stocks displayed mixed sentiment. While some bellwether NBFCs saw robust demand due to their growing loan books, concerns about tighter credit policies and rising provisioning requirements weighed on valuations.
Financial analysts argue that while NBFCs have democratised access to consumer credit, especially in semi-urban and retail segments, the RBI’s regulatory push for board-approved policies and disciplined risk frameworks marks a recalibration of the credit ecosystem — balancing financial inclusion with prudential safeguards.
